The last 3 weeks we have seen common stocks move lower by over 6%–which means that at current levels the S&P500 is 11% below the 52 week high.
This mover lower is something I have expected–and the way it is occurring–not in a panic, but in an orderly fashion (in spite of 500-700 dow point moves) is just the way I want to see stocks fall. When common stocks move lower in an orderly fashion we don’t reach the point where the ‘baby gets thrown out with the bath water’ so most of the issues I now own have been pretty stable.
As always we all can predict (known as a WAG–wild ass guess) the future–of course we have no real clue as to what the future holds–to guide our investing. I used to always formulate what I thought the economy, both domestically and globally, would look like 6-12 months out to formulate my investing, but NOW it is a waste of my time as we are in totally uncharted waters–but I do it anyway.
Right now it looks like we are going to see more ‘lock downs’ throughout the country. So all of the zombie companies that are out there will have to finally toss in the towel. I’m talking some of the airlines, cruise lines, restaurants and bars, some retailers and lodging companies. As I type this airlines are making plans to layoff huge numbers of folks and cruise lines are pushing out sailings further and further. Air travel, while being touted as staging a comeback, is still off 77% from last year. In a business like airlines if your business is off 5 or 10% year over year you are going to be in poor shape–let alone down by 25, 50 or 75%!! I understand some of the amusement parks have reopened in Florida, but no one is showing up. With little air travel crowds are small – will they lose more money when open than they do when they are closed?
Of course my sour mode on the economy can change rapidly if we have a breakthrough treatment for COVID 19, or a vaccine. Neither of these will be in time to rescue the zombies. Borrow more and more money to stay afloat which simply raises your cost of operating as all of the free cash goes toward servicing debt.
I haven’t even touched upon the state and local governments that are barreling toward insolvency. In Minnesota many local governments can’t even open their public swimming pools for the kids–sad. On the other hand if these local governments were managing the city correctly they would have some reserves–but no, they spend every penny they can lay their hands on. In my town they are finally opening the pool on Monday since the governor has finally released the CARES act money to the local governments–helicopter money to bail out the local governments. Everyone complains about high taxes–just wait!!
So I stay invested in the income issues I truly and totally believe in–preferred stocks of closed end funds and utility preferreds and baby bonds. After doing some around the edge trimming in the last 10 days I am down to around 65% invested–I’m fine there and am very willing to forgo some income to sleep at night.